Electric vehicle manufacturers want tax cuts

Electric vehicle manufacturers are asking the government to introduce tax incentives aimed at easing the cost of owning and operating electric vehicles in Kenya.

This comes even as global automakers launch and scale up operations in Kenya as they target to establish a foothold in the regional market.

"The development of electrical vehicles is accelerating globally and Kenya has some way to go to establish the right conditions for the local industry to flourish," explained Pedro Campos, Managing Director of Caetano Kenya.

The firm, which is headquartered in Portugal holds the local franchises for Hyundai Renault and this year acquired the rights to distribute Kia units in the Kenyan market. It is planning to launch a local assembly.   

"The Kenyan government targets to have five per cent of new vehicle sales to be electric units by 2025," he explains.

Data form the Kenya National Bureau of Statistics (KNBS) indicates the number of newly registered motor vehicles and motor cycles rose by 15 per cent to 399,052 in 2021 from 346,729 the previous year.

However, the bulk of vehicles sold in the country are second hand and last year, new motor vehicles sales stood at 12,750 units as at November. 

"The Kenyan car market is heavily dominated by one or two brands. The cars are predominantly second hand," explained Mr Campos.

Last month, Nairobi based company BasiGo launched the first electric bus in Kenya targeting investors in the country's public transport sector.

The company has partnered with PSV operators Citi Hoppa and East Shuttle to ply several key routes in Nairobi City with plans to scale up in the coming months.

The firm targets to introduce 1,000 buses into the country's transport sector over the next five years creating additional demand for renewable energy.

Already, the work of recruiting potential bus owners on its fleet has begun and the company has partnered with Chinese firm BYD Automotive to bring in the K6 electric bus model, a 25-seater, 250 km range mini-bus that recharges in less than 4 hours. 

The firm is banking on a Pay-As-You-Drive battery financing programme where owners can purchase the K6 for Sh5 million plus a daily subscription fee equal to Sh20 per kilometre which includes the cost of leasing the battery, nightly charging at a BasiGo depot, and service and maintenance for the electric bus.

Last month, Swvl and fintech Moove announced a partnership to scale Moove’s revenue-based vehicle financing model across the region with up to 60 per cent of the vehicles expected to be electric.

In the 2022-23 financial year, the National Treasury has proposed several tax incentives aimed at local manufacturers and assemblers of motor vehicles.

"In order to encourage more investment especially in the manufacture of passenger motor vehicles locally, I propose to exempt from value added tax VAT inputs and raw materials used in the manufacture of passenger motor vehicles," said Ukur Yatani, Cabinet Secretary for the National Assembly in his budget statement recently.

Treasury has also proposed to exempt locally manufactured passenger motor vehicles from VAT.

Mr Yatani said the measures will encourage investment in the sector and enhance competitiveness of locally manufactured passenger motor vehicles.

However, manufacturers say production costs for electric vehicles are still very high which has been made worse by the disruption from Covid-19 and the global supply chain crisis.

"The cost of production for electric cars is still too high and the tax incentives are necessary to lower the retail cost for the consumers," said Campos. "We need tax incentives on the duties payable both on the components and whole units to make it appealing to consumers."

Campos noted that some of the incentives could include exempting electric car owners from parking fees or toll payments.

"There's also a need to invest more in setting up charging infrastructure," he explained. "Today, we have about 10 charging points in Kenya while in reality thousands will be needed."